Wages in the United States: Trends, explanations, and solutions

Abstract

Since the late 1970s, two major developments have occurred regarding wages in the U.S.: the stagnation of real wages for various groups of workers and the increase in wage inequality. This chapter examines these trends in some detail and finds that real wages have performed better for women than men and for the more highly educated relative to those with less educational attainment. However, particularly since 2000, few groups have been spared; even workers with 4-year college degrees have experienced some stagnation in real hourly pay. The chapter examines economic theories of wage determination and finds that while skills often play a critical role in both theory and practice, other important wage determinants, most notably the absence of full employment—the persistently slack labor markets that have prevailed over the stagnation/dispersion period—are often underemphasized. The chapter suggests a number of policy recommendations to offset the problems of wage stagnation and increased wage inequality, including greater skill acquisition as well as policies to promote full employment and strengthen eroding labor standards.